China's Infamous 'One-Child Policy' Is About To Become A 'Two-Child Policy'

Since 1979, China has maintained a population control program
known as the "one-child policy," in most cases limiting families
living in urban areas to only one child.

The country just completed a once-in-a-decade leadership
transition earlier this year, though, and the new management is
eager to show its reform-minded stripes amid a slowdown in the
Chinese economy.

As a result, the "one-child policy" may be set to become a
"two-child policy" fairly soon.

"According to
the 21stBusiness Herald which
cited sources close to the National Population and Family
Planning Commission, China may significantly relax its one-child
policy at end-2013 or early-2014 by allowing families to have two
children if at least one parent is from a one-child family,"
writes BofA Merrill Lynch economist Ting Lu in a note to clients.
"A plan for allowing all families to have two children after 2015
is also being reviewed. We believe the news to be reliable and is
in line with our view."

Deutsche Bank
economist Jun Ma says a transition to a "two-child policy" would
be something of a long-term stimulus package.

"As tens of millions of sibling-less people in China are
now entering their child-bearing age, we expect this policy shift
would induce the fourth baby boom of the country," writes Jun in
a note. "This projected
baby boom, although in smaller scale than the previous three,
would reverse the declining trend of newborn babies since 1990s
and would eventually help mitigate the negative impact of aging
population on economic growth and financial sustainability of the
pension system."

BofA's Ting calculates around 10 million new babies as a
result of the proposed policy shift:

If the 21stBusiness Herald
news is confirmed, the demographic reform path (which we called
“piecemeal path” in our earlier report) is more conservative
than our baseline “middle path”, which is defined as allowing
all families to have two children without any restrictions. So
is this a big disappointment? Not really. This is because the
one child policy now is only strictly enforced in urban areas
and some developed rural areas where most couples of
child-bearing age have at least one singleton (note China’s
one-child policy started in the late 1970s).

According to the 2005 population survey, singletons
account for 29.3% of Chinese aged 30 or under (the generation
affected by the one-child policy). The ratio should be
significantly higher in urban areas. Assuming 60% of people of
child bearing age in urban areas are singletons, on top of the
36% families which are already allowed to have two children, we
estimate 48% of urban families of child bearing age could
benefit from the coming reform. Using census data, there are
79mn women of child bearing age (23 to 42) this year. 48% of
79mn is 38mn. Assuming 25% of them choose to have a second
child, about 9.5mn babies would be born as a result of this
reform to one-child policy.

"We believe that the
reform-minded president Xi and premier Li will use the
opportunity of abolishing the one-child policy to build up their
authority, show their determination in making changes and
convince the Chinese people that they do have a roadmap for
reforms," says Ting.